Annuity FYI Visitor Blog

According to Cincinnati.com article “Whether and when to buy fixed annuities,” J. Brendan Ryan says that there are good reasons to buy a fixed annuity.  They offer safety to investors, much like Social Security but with a higher monthly payout off which you could actually live.  While they are subject to the financial stability of the insurance company that will be making your payments, doing research and choosing a stable insurer should offer you a secure future.  The older you are when you start receiving your annuity payments, you will receive a higher amount of money each month in your income checks.

Ryan believes that it’s important to buy your annuity early and have it deferred until a later time in your life.  While immediate annuities work for people who haven’t purchased their annuity at an early age, buying early and deferring your payments until retirement will defer the taxes on your interest until you start receiving payments.  Another reason to buy an annuity early is that you’ll receive a higher monthly income based on the mortality tables.  Most annuities guarantee your income with the mortality tables in effect when you purchase the investment.  As life expectancies increase, your payment would be less had you purchased your annuity 20 or 30 years later in life.  Sometimes the new benefits offered by insurers do make it wise to transfer your money to a new fixed annuity product though.

Insurance & Financial Advisor’s Bob Graham summarized a recent Towers Watson survey in his article “Lifetime income options drawing more attention in 401(k)s.”  The employers who offer 401k plans to their employees have turned their attention to annuities and other investments producing lifetime income.  Currently, 18% of employers either offer annuity options currently or plan to in the next year.  Another 30% of those surveyed said that they are looking into annuities for the future.  While this shows an increasing number of employers interested in annuities, there are still far too many who don’t consider the benefits their employees would receive from guaranteed lifetime income.

That is probably partly because most of the employers offering annuities don’t have many employees opting for the products.  Nearly 80% of those offering annuities in 401k plans only see 5% of their employees choosing them.  Employees need to compare annuities to other investment options to realize how well they can work in their retirement plan.  As traditional defined benefit plans become a thing of the past and account based plans become the norm, annuities are a good way to provide an income stream that will last throughout retirement.  Towers Watson consultants believe that while annuities are still not widely used in 401k plans, they are an important tool to bridge the gap in employees’ retirement income.

In Money Magazine’s Ask the Expert section, Walter Updegrave advises a couple to “Bridge income gaps with an annuity.”  While they asked him how much of the husband’s 401k should be transferred to an annuity, there wasn’t quite an easy answer for that since everyone’s situation is different.  The most important thing to do when considering your annuity purchase for retirement is to figure out how much you’ll need to cover after factoring in your pension/s and your social security payments.  You’ll have to determine how much income you will need in retirement and compare that with the income you’ll have coming in from pensions and social security.  Whatever extra income you need to cover can be met with the guaranteed lifetime income of an annuity.

The author recommends the use of immediate annuities to bridge this gap, although there are numerous types of annuities to choose from.  Your best bet is to speak with an expert and find out which type of annuity will work for your specific needs.  Immediate annuities pay you guaranteed payments over you or your spouse’s lifetime in exchange for an upfront lump sum payment to an insurance company.  Your payments are based on your age and the current interest rate.  Since rates are typically low right now, it could be in your benefit to purchase your annuities over the next few years instead of all right now.  Many people are purchasing a variable annuity with a guaranteed lifetime withdrawal benefit for a similar retirement purchase.  While they may not work for everyone because of the fees and guarantees associated, the products can be another successful retirement annuity.

Secondary market annuities have been around for 15 years, allowing investors who need or want to sell annuities to do so.  In “Don’t want that annuity anymore? You can sell it,” Vanessa Richardson of Bankrate discusses this market.  J.G. Wentworth estimates that there are $50 to $100 billion of annuities annually that can be sold in the secondary market.  They say that the past two years have really seen an increase in investor interest in these annuities.  They get much more control over their annuities with the ability to sell them for a lump sum of cash or payments over time.

Annuities are usually used for retirement income purposes, with over $200 billion sold each year.  In the secondary market, annuities are packaged together and sold to large institutional investors most often.  Investors who want to sell their deferred or immediate annuities do so for many reasons.  They may have inherited an annuity that wasn’t what they desire in investment terms, changed their investment or tax goals, had a financial emergency, or realized they are not happy with their annuity.  The secondary market is also good for people who don’t want to sell all of their annuity because you can sell part of it and keep the remaining payments.

According to Insurance News Net’s “Allianz Life President and CEO Named to IRI Board of Directors,” the Insured Retirement Institute has a new Director on board.  Gary C. Bhojwani, Allianz Life Insurance Company of North America’s President and CEO, has joined the IRI’s Board of Directors.  The not-for-profit IRI is the main authority for everything pertaining to annuities and other insured retirement strategies.

Cathy Weatherford, the IRI’s President and CEO, says that the organization has been very successful in changing retirement planning opinions and laying the groundwork for insured retirement strategies becoming more popular.  They are happy to see their board grow with many of the top leaders in the nation, helping them maintain their position as the top annuity organization.

The IRI’s National Retirement Planning Week in April successfully educated millions of Baby Boomers in the need for retirement security.  Whether through 401k annuities or other retirement plans, Bhojwani feels privileged to be part of an organization helping to promote solid retirement planning to Americans.